My latest column in Critical Quarterly is available here.
The Bank published the 2017 H2 edition of the Household Credit Market Report last week. The report collates information from a wide range of internal Central Bank and external sources into one document to give an up-to-date picture of developments in the household credit market in Ireland. It covers both mortgage and consumer credit. Among the highlights in this edition, mortgage credit grew at an annual rate of 1.4 per cent for private dwelling homes in Q2 2017 but remains negative for Buy-to-Let purposes (-8.6 per cent). New mortgage approvals and drawdowns continued to increase in Q2 2017, with First Time Buyers continuing to account for roughly half of all approvals and drawdowns. For the period January to June 2017, the average originating loan-to-value (OLTV) ratio on new lending for FTBs was 79.4 per cent and the average originating loan-to-income (OLTI) ratio was 3.0. The corresponding figures for Second and Subsequent Borrowers (SSBs) were 67.6 per cent and 2.5 respectively. These ratios increased slightly in comparison to the second half of 2016. On average, FTBs and SSBs borrowed €199,414 and €229,332 respectively during the period January to June 2017. In terms of consumer credit, growth remains positive at 5.4 per cent year-on-year in August 2017, reflecting growth in loans of a maturity of between 1 and 5 years. More details from the Report can be found here.
Economic Modelling of Agricultural Land Markets
The objective of this project is two-fold. Newly available data on agricultural land structure and tenure in Ireland will be exploited to assess (i) the impact of new taxation measures on land mobility between farmers and (ii) the impact of land tenure and mobility on the economic performance of farm businesses. Specifically, economic modelling techniques will be used to examine the relationship between land fragmentation, tenure and farm productivity and efficiency. The effectiveness of recent tax incentives around long-term leasing of land will be explored and the impact of long-term leases on farm performance will be measured. Overall this project will contribute to a greater understanding of how the agricultural land market in Ireland operates, how policy measures can influence mobility and how land tenure impacts on the performance of the agricultural sector.
The successful candidate should be highly self-motivated with an ability to work independently and be willing to undertake recommended coursework where necessary. Strong quantitative skills and good communication skills, both written and verbal, are essential requirements. Applicants should have a good primary degree (First or Second Class Honours) or M.Sc. in an appropriate discipline (Economics, statistics or related).
The Ph.D. Fellowship is a joint research project between Teagasc, Rural Economy and Development Programme, Athenry Co. Galway and the Cork University Business School, University College Cork. The student will be work under the supervision of Prof. Thia Hennessy (UCC), Dr Robbie Butler (UCC) and Dr Emma Dillon (Teagasc).
The fellowship provides a stipend of €22,000 per year. University fees are paid by the student from the stipend which is tenable for 4 years.
Prof. Thia Hennessy, Dean, Cork University Business, University College Cork. Phone +353 (0)21 490 2868 Email: firstname.lastname@example.org
Dr. Emma Dillon, Rural Economy and Development Programme, Teagasc, Athenry, Co. Galway. Phone +353 (0)91 845 294 Email: email@example.com
Dr. Robbie Butler, Cork University Business, University College Cork.
Phone +353 (0)21 490 2434 Email: firstname.lastname@example.org
Submit an electronic copy of Curriculum Vitae and a letter of interest simultaneously to: Prof. Thia Hennessy (email@example.com) and Dr. Emma Dillon (firstname.lastname@example.org).
Closing date 5pm Friday 17th of November 2017.
President Higgins delivered a lecture at the University of Melbourne last week. It was well received. Given the content, I thought readers of this blog might like to listen to it. The President also gave a podcast which summarises some of his views on economics here.
Multinationals make very real profits from charging for the use of their IP. In 2015, the trading profit made by multinationals in Ireland on their IP shot up by €26bn. This was completely offset by capital allowances they received - basically reducing their taxable profit on that to close to zero. To put it in perspective if we had allowed just 80pc of that to be set against capital allowances, we could have taxed 20pc of it at 12.5pc. It could have yielded around €650m in tax.
The measure is linked to the recently published Review of Ireland’s Corporation Tax Code and Richard Curran’s piece throws light on most of the key issues, except one: the link to Ireland’s contribution to the EU budget. This is referenced in paragraph 9.3.11 of the review:
Figures from the Revenue Commissioners and Tancred (2017) show that there was a €26 billion increase in intangible-asset related gross trading profits in 2015. This was offset by an increase in the amount of capital allowances for intangible assets of a similar scale. These gross trading profits are included in Ireland’s Gross National Income but the use of capital allowances results in a much smaller amount being included in the taxable income base for Ireland’s Corporation Tax. Given Ireland’s contribution to the EU Budget is calculated by reference to Gross National Income, this increase in profits has an impact.
Assessing this impact was beyond the scope of the review but is something which the seven-page note linked below attempts to address. With lots of moving parts precision is difficult to achieve but the broad elements of the issue should hopefully stand out.
Update: Here is a bullet-point summary
- In 2015 intangible-asset-related gross trading profits of multinationals operating in Ireland increased by €26 billion.
- In the same year claims for capital allowances related to expenditure on intangible assets increased by €26 billion.
- No Corporation Tax is due on the gross profits offset by capital allowances
- Using estimates from the Department of Finance implies that these figures have risen to around €35 billion for 2017.
- These untaxed profits are included in Ireland’s Gross National Income which adds about €200 million to the country’s contribution to the EU budget.
- A cap on the amount of capital allowances that can be used in a single year is to be introduced for new claims for capital allowances on intangibles.
- Based on patterns for the past two years the Department of Finance forecast that this will result in €150 million of additional Corporation Tax being paid in 2018.
- The Revenue Commissioners figures for 2015 and the Department of Finances estimates of the impact of recent onshoring imply that intangible-asset-related gross trading profits are expected to be around €40 billion in 2018 (with a further €36 million added to the EU contribution).
- If the cap applied to all claims, existing and new, then the additional Corporation Tax to be collected in 2018 could be up to €1 billion using the 2015 figure published by Revenue and estimates from that time used by Finance.
- If companies who are expected to move IP here in future years are happy to pay the tax now why doesn’t the same apply for companies who already have IP here?
The robust performance of the Irish labour market over the past number of years offers the most tangible evidence of the recovery in the Irish economy. With unemployment falling and vacancies rising, an obvious question that arises is the extent to which the current pace of growth can be maintained. Today, colleagues in the Central Bank published a paper examining this very issue, bringing together a range of labour market indicators to assess the current state of play including prospects for wages over the short-term. We also revisit Okun’s law and the Phillips curve drawing on the latest Irish data. We hope that this research proves useful as 2017 draws to a close. The paper is titled ‘The Labour Market and Wage Growth after a Crisis’ and can also be accessed by clicking this link.
Guest post below from Muiris MacCarthaigh from Queen’s University Belfast:
Budget 2018 and a tale of two Departments
The budget to be published this Tuesday will be the first since 2010 to be prepared and delivered by a single Minister, Paschal Donohoe T.D., who holds both Finance and Public Expenditure and Reform portfolios.
As will be widely remembered by readers of this blog, following the 2011 general election the Department of Finance was essentially split in two, with that Department retaining control over taxation and reform of the financial services sector. (Indeed for a while consideration was given to renaming it the Department of Finance and Taxation). The ‘spending’ side of the Department was removed and combined with public service reform and industrial relations into the Department of Public Expenditure and Reform (DPER). As well as providing for a significant reallocation of central government functions, and an organizational focus for administrative reform, DPER served the useful political purpose of allowing the Labour Party hold another central government portfolio. This also gave it co-equal status with Fine Gael at the Economic Management Council or ‘War Cabinet’.
What is not widely appreciated is the enormity of the task faced by officials in the Department of Finance over the pre and post-election period to prepare for and then execute the process of creating the new Deparment, all in a matter of weeks. When beginning the research for my recently published book on DPER over the 2011-16 period, the sheer scale of this undertaking quickly stood out. Led by a small group of officials, it involved trawling the Irish statute book for all primary and secondary legislation concerning the responsibilities of the Minister for Finance in law from 1922 onwards (as well as some pre-1922 treasury-related functions), before that Department could be disaggregated into two.
The range of responsibilities for which the Minister for Finance had a legal responsibility included such diverse issues as provisions for compensation applications arising from property damage during the 1921-23 Independence and Civil War period, to consenting on borrowings for capital investment for commercial state enterprises. All told, it resulted in a process involving the transfer of over 4000 specific legal functions originally assigned to the Minister of Finance.
In respect of Budgets, a number of interviewees for my study identified how the institutional split between revenue-raising and expenditure functions had created a useful ‘buffering’ effect on demands for increased expenditure by line Departments. Prior to DPER’s existence, the relevant section in the Department of Finance assessed new expenditure proposals from a line Department, and the merits of raising taxation or other forms of revenue to support the measure were also considered in that same Department. With the decoupling, appeals to DPER for extra resources fell largely on deaf ears as the Department and its Minister had no say in taxation matters.
The quality of engagements between DPER and other Departments were also deemed to have taken a step change by virtue of the economic evaluations provided for them by the IGEES. Additionally, the strong relationship between Ministers Howlin and Noonan were consistently referred to as being vital to the Irish crisis response, including budgetary coherence, and by proxy to the stability of the government as a whole.
At the launch of my book, Minister Donohoe identified that the Taoiseach had been keen to maintain the two Departments when announcing his Cabinet following his election in June. Whether this was to preserve the integrity of DPER’s reform agenda, to place coordination of fiscal and budgetary policy in one Minister, or to avoid accusations of a return to pre-crisis arrangements for government departments is hard to say. As is how long DPER will continue to operate as a separate Deparment .The economic crisis may be a decade old, but its effects on budgetary policy and the organisation of Irish government continue to be felt.
Dr Muiris MacCarthaigh is Senior Lecturer in Politics and Public Administration at Queen’s University Belfast. His new book, Public Sector Reform in Ireland: Countering Crisis, has just been published by Palgrave.